Chris Plavidal

Commercial Real Estate

CRE Opinion: Investing in Retail Post-Retailpocalypse

Toys R Us, Sports Authority, and Gordman's were among the retail casualties in 2017. See what 2019 has in store.

Chris Gerard, senior vice president, CBRE

Last year was a transformational year in retail. From major bankruptcies (Toys R Us, Sports Authority and Gordman’s) to major acquisitions (Amazon’s purchase of Whole Foods) to stock market fluctuations for many retailers, the sector grappled with big changes.

All of this led to a flight of capital away from Power Centers, particularly in secondary locations, and a swift rise in cap rates – as much as 150 basis points in some cases. But as 2018 rolled around, smart capital was prepared to pounce on a tremendous opportunity.

If 2017 gave us Retailpocalypse, then 2018 can only be described as the Year of the Professional.

Industry pros recognized quickly in 2018 that not all Power Centers are bad (and conversely not all grocery-anchored centers are good). These pros are local or regional players who know markets like Corpus Christi, Lubbock, Oklahoma City, McKinney, Katy, and Arlington inside and out. They have watched tenants like TJX, Best Buy, Ross, and Target learn to play by and thrive under today’s new e-commerce rules. They are experienced enough to garner aggressive loans in the financial markets. All of this has given these pros a chance to buy core plus retail centers and achieve value add returns (typically around 18 percent to 20 percent).

Is it too late?

According to CBRE’s research, retail fundamentals remain at or near all-time highs in most major and secondary markets despite the aforementioned bankruptcies. Pressure on REITs to exit secondary and tertiary markets will keep supply of these good power centers high in 2019. And, the financial markets appear to be as active as ever. I, for one, expect the Year of the Professional to extend into extra innings in 2019.

 

Chris Gerard, senior vice president with CBRE, is a retail investment sales professional within the National Retail Investment Group. Gerard oversees retail investment sales in Texas, New Mexico, Oklahoma, Arkansas, and Louisiana.

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